Trading Plan for 9/24

[pay]SPECIAL NOTE: An extensive library of short videos is now available for learning more about the Bias Parameter. Look in the blog’s sidebar for the link to “FAQ: Bias Parameters” and be sure to watch the two introductory videos. More videos to be made available in coming days…

About that close (How the prior session ended)
Thursday’s open and close were both 1120.50. You would hardly know the close followed an hour-long 11-point drop from 1128.25, already down 4 points off the high. And you wouldn’t know sellers gained no traction for the effort. The drop probed the 1117.50 pre-open low but held the opening print.

It’s like tagging up at second base on a pop-fly, and then getting tagged out trying to steal third. Should have held your base and waited for a line drive before advancing.

Pattern points (And technical influences)
Actually, Thursday’s 1120.50 open was still being retested at the close, and not clearly recovered. But the burden of proof was on sellers. They can still furnish it by gapping down Friday under 1114.50. That’s the 61.8% retracement of last week’s trading range. The 38.2% retracement already produced a bounce.

Having filled the gap back to Wednesday’s close, two overbought RSIs at this week’s highs are the only unfinished business above. And as I said here in yesterday’s Trading Plan, not retesting overbought RSIs happens only when a massive move is underway in the opposite direction.

Avoiding a drop into the weekend depends mostly upon avoiding opening weakness. Even if the most bullish result is a brief bounce back up to 1127.00-1128.00, Fridays don’t often reverse the morning’s bias. Making it past 10:00’s New Home Sales without new lows would marginalize sellers through the afternoon or weekend.

Price action through Thursday’s 3:10-3:20 window probed a fresh low and recovered it. This provides context for the next dip, predicting that its purpose is to refuel buyers for a rally leg. The dip’s targets held their tests through the close. But I wouldn’t give buyers any extra benefit of the doubt until they trigger a buy signal.

Bottom line (My underlying premise)
This week’s high peaked upon testing the sleeper high we had looked at repeatedly in the morning market tour. The rally there was littered with signs of excessive optimism. Even Monday’s breathtaking “breakout” has been fully retraced as expected. Keep in mind that this is the context in which there remains some potential to retest the high’s overbought RSIs – the overbought RSIs do not offset the bearish picture or provide a path to a new rally leg.[/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.